Investing in cryptocurrency is one of the quick ways of making money today even though it is the riskiest form of investment.
There are several opportunities to make passive income through cryptocurrency. Many are however not aware that taxes are being paid on cryptocurrency.
There are nations of the world such as the USA where taxes are being paid on the crypto investment. As crypto is just developing, there are many things investors need to know about it. One of which is that crypto taxes can be legally avoided.
In this post, we’ll learn about how to legally avoid cryptocurrency taxes today. This will help you to plan your investment wisely so let’s get into it.
Top 5 Ways to Legally Avoid Cryptocurrency Taxes in 2024
How to legally avoid cryptocurrency taxes
As taxes are paid on businesses, wages, salary, and so on, so are taxes being paid on properties such as cryptocurrency in some parts of the world. It is very important to know the law guiding crypto in your area before going into it. However, discussed below are some of the top ways to avoid crypto taxes today.
1. Declare your Crypto as Income
Whether you make a profit on cryptocurrency via crypto trading, staking, mining, or holding a crypto wallet, taxation works on it all. When you receive crypto in these cases, it is reported as income.
It must be recorded as income and the fair value of the crypto asset must be reported for proper taxing. When you report this income, it’s taxed at ordinary income tax rates.
In other crypto activities like mining, the endeavor is counted as self-employment taxes plus ordinary income taxes.
2. Hold Cryptocurrency on Long-term basis
Holding on to your crypto assets can be helpful in not just bypassing the bearish market but also avoiding taxes. You can only pay taxes on crypto you bought and want to sell to make a profit.
When you hold on to your cryptocurrency without selling, you have avoided paying tax on it. If you have any reason to sell it thereafter, it will be taxed. However, if you hodl your cryptocurrency for more than 12 months, you’ll be taxed but will help to lower your tax burden. When this is done, you’ll be glad to see the amount you’ve saved.
3. Give Gifts to Friends & Family
There’s so much to gain when you give-including crypto assets to your loved ones. Giving out an amount of your crypto holding can help you to avoid taxation or reduce the tax rate.
There are however certain amounts of crypto you could give out as a gift in a year. You need to know the rules and regulations backing cryptocurrency in your country. This will help you in your bid to legally avoid crypto laws.
It is also important to know that the receiver of the crypto gift is covered by paying taxes. So giving out your cryptocurrency as a gift is a plus.
4. Donate to Charity
Is it not much better to donate your crypto for a charitable course than have them used as tax payment? Donating to a qualified charity may be tax-deductible if you itemize your deductions. Just as it is with holding your crypto, you must have held your crypto assets for a year to be qualified for this.
When you donate part of your crypto holdings, you might get favorable tax treatment. The fair market value of the cryptocurrency has to be deducted. Another thing to put in mind that are limitations of the deduction amount.
5. Hold on to Cryptocurrency Till You Die
This might sound awkward but it is a way of legally avoiding crypto taxes. You could decide to use crypto as a wealth-generating tool, holding on a ‘longer long term is a good option.
This option is not for you if you don’t believe in the statement ‘cryptocurrency is the future of money. If you don’t want to have access to your crypto funds when you have other sources, you can hold on for life. However, you need to know that this strategy might offer outstanding tax treatment.
You are saying what will happen to the crypto holdings when you die. Well, your assets receive what’s called a step-up basis when they are passed on to your family. This will help you not to pay the accrued tax which will be paid if you decide to sell before dying.
Conclusion
Cryptocurrency is still in its infancy stage so much has to be learned. One of them is how you can legally avoid cryptocurrency taxes in countries where your crypto gains are taxed.
If you are going into a crypto investment, you should always make your findings. This includes the crypto asset to invest, exchange to use and the laws backing crypto in the nation, and so on before jumping.
